Government Takeover of Retirement Assets

For the first time, taxpayers may become responsible for the nongovernmental pension liabilities of union collective bargaining contracts in construction, trucking and other industries in which workers move from one employer to another. Some estimate that these multi-employer pensions are $165 billion short of committed obligations for paying retirees' defined benefits. It's not a new problem, but it has been under the radar for years as it's worsened. - Editorial: Private union pensions the next bailout?, The Orange County Register, August 20, 2010

Big Labor Pension Strategy: United States of Argentina?

April 19, 2010

OpenMarket.org - Service Employees International Union (SEIU) President Andrew Stern made a big splash last week, when he announced his retirement from leading what is arguably America’s most powerful union. As I noted then, Stern leaves SEIU with the union’s pensions for rank-and-file members seriously underfunded.

Yet he may have a plan to bail out those pensions — at taxpayer expense. Worse, Stern and his labor allies are working with the Obama administration to facilitate a direct government takeover of pensions. (It’s worth noting that the Obama administration includes a lot of organized labor appointees, especially from SEIU, as well as Vice President Joe Biden’s chief economic adviser, Jared Bernstein, who was previously chief economist at the labor-backed Economic Policy Institute.)

As The Washington Examiner’s Mark Hemingway explains, one vehicle being used to push this agenda is the White House’s Middle Class Task Force.

The section of the [Task Force's] report devoted to “Protecting Workers and Creating Middle-Class Jobs” reads like organized labor’s policy wish list. It pushes expensive “high road” federal contracting, plans for project labor agreements, enforcing labor standards, a “National Equal Pay Enforcement Task Force” and, most perniciously, “retirement security.”

Social Security is bankrupt and the average union pension plan only covers 62 percent of its liabilities, well below the 65 percent threshold at which the government considers the plan “endangered.” Given these facts, the Economic Policy Institute has teamed up with two of the most powerful unions in the country — the AFL-CIO and Service Employees International Union — to push something called “Retirement USA” (visit Retirement-USA.org).

Retirement USA looks like a scheme to prop up trillions of dollars worth of failing pension plans by seizing your personal savings. It would create a universal retirement plan for all Americans that centralizes all existing retirement plans — including your personal 401(k) savings and private pension plans — into the same retirement system.

Free-market advocates often accuse those on the Left of trying to turn America into France, but would follow a model even more bureaucratic and dysfunctional: Argentina, where the government of President Cristina Fernandez has seized pensions to pay for its profligacy. Kirchner seems to have learned little from her country’s epic economic decline during the 20th century, which was due largely to abysmal policies. For America to consider something even slightly similar today is terrifying.

For more on pensions, see here, here, and here.

Private Union Pensions Are the Next Bailout

August 18, 2010

CNSNews.com – The addition of a powerful Senate ally may be what supporters of a new union bailout bill need to get legislation passed that would put the responsibility for funding union pension plans on the shoulders of American taxpayers.

That new ally is Senate Majority Whip Dick Durbin (D-Ill.), the Senate’s number two Democrat and longtime union ally. The bill, the Create Job and Save Benefits Act of 2010, is the plan of Sen. Bob Casey (D-Pa.) and had languished in committee since March 23.

With the addition of Durbin – who lent his support shortly before the Senate went on summer break – the bill could see new life, especially since Senate Democrats failed to pass the Employee Free Choice Act, known as Card Check, a top priority of their union allies.

The bill would allow the federally chartered Pension Benefit Guarantee Corporation (PBGC) to use taxpayer money to bailout so-called “orphan” benefits plans.

Currently, the PBGC acts as an insurance fund for retirement pensions, charging a fee to extend coverage to private pension plans, should those plans fail. In the event that a pension fund cannot pay the benefits it promised, the PBGC can step in and use the fees it collects to pay benefits. The PBGC is not allowed to tap into taxpayers’ money to bail out pension plans.

The problem for many union pension plans is that they are structured as multi-employer plans, which means that employers in certain unionized industries contribute to the plan. While employers are required to fund the plans, they do not control how that money is invested, a responsibility that falls to the unions.

In the wake of the 2008 financial crisis and recession, many of these plans have gone into distress, facing both funding and liquidity issues as the value of the plans’ assets have declined and some of the businesses funding them have closed.

This poses a problem because if a company goes out of business, it can no longer fund the pensions of its former employees, even though those workers can still draw from the pension fund. This places increased financial strain on the remaining companies and puts pressure on the unions to cut benefits.

A 2009 report from Moody’s Investment Services found what other economists had previously warned about: that many union pension funds were already underfunded and would probably not be able to pay out all of the benefits they had promised to current and future retirees. This becomes a major problem for the unions because their plans are defined-benefit plans that promise to pay a certain level of benefit no matter what.

The underfunded state of many union plans -- 27 such plans far this year -- could prove disastrous for the unions, since the PBGC will only pay a maximum of $12,870 per year per retiree if it bails out a multi-employer pension.

When a multiemployer pension is unable to pay promised benefits it goes into critical status, a designation that allows the PBGC to take it over and begin paying benefits. The Casey bill would solve many of the union plans’ problems by shifting the burden from the unions to the taxpayers, shielding the unions from having to accept the reduced benefits that come when the pension plans go bankrupt.

Plans that are considered critical are those with only 65 percent of the assets needed to pay all current and future benefits. When a plan goes into critical status it must immediately cut its vested benefits.

Casey’s bill would set up a special “fifth fund” within the PBGC that would be used specifically to bail out multi-employer pension plans that fail and assume critical status. Once a plan goes into critical status, the Casey bill would empower the PBGC to step in and draw from the fifth fund to pay out benefits.

The PBGC would then guarantee the benefits of union pensioners.

“The monthly benefit of a participant or a beneficiary … which is guaranteed under this section by the corporation with respect to a plan is equal to the nonforfeitable benefits of such participant or beneficiary” before the plan went bankrupt, according to the legislation.

In recognition that many union plans -- confronting a combination of increasing liabilities and decreasing funding -- are likely to face serious financial difficulties in the future, the Casey bill allows the PBGC to use taxpayer money to fund the union pension bailout.

“[O]bligations of the corporation [PBGC] which are financed by the fund created by this subsection shall be obligations of the United States,” the bill states, meaning that the federal government -- “obligations of the United States” -- would ultimately be responsible for paying the pension benefits of union retirees.

The Union Pension Bailout

June 1, 2010

National Center for Policy Analysis - Feeling tapped out after stimulus, ObamaCare and everything else? Senator Bob Casey has one more deal for you. If the Pennsylvania Democrat gets his way, U.S. taxpayers will also pick up the astonishing tab for poorly managed union pension plans, says the Wall Street Journal.

Casey is gathering support for his "Create Jobs and Save Benefits Act," a bailout for union run retirement plans. Similar to House legislation from North Dakota Democrat Earl Pomeroy and Ohio Republican Patrick Tiberi, the bill would transfer tens of billions of dollars worth of retiree liabilities to the Pension Benefit Guaranty Corporation, i.e., to taxpayers.

At issue are multi-employer pension plans, in which companies across an industry pay into a single pension pool:

• The plans are predominately run by unions and for years have distinguished themselves by poor management.


• The Labor Department in 2008 listed 230 multi-employer plans that were either endangered (less than 80 percent funded), or critical (less than 65 percent funded), or that had applied to government for funding relief.


• By 2009 that number had soared to 640.

The financial crash is partly to blame, but even before 2006 only about 6 percent of multi-employer plans were fully funded, compared to about 31 percent of single employer plans. The real problem is that multi-employer plans have become a sort of pension Ponzi scheme, says the Journal.

Unions love multi-employer plans because they let workers keep their retirement benefits even if they switch jobs to another participating company. This encourages lifelong union membership. Unions are less enthusiastic about paying the bills. The negotiating priority of union leaders is to get hefty wage increases and benefits for current workers, leaving the scraps to the pensions of retirees who no longer vote in union elections, says the Journal.

Source: The Union Pension Bailout: A scheme for taxpayers to cover mismanaged multi-employer plans, Wall Street Journal, June 1, 2010.
Update: The Next Pension Bailout , Wall Street Journal, August 15, 2010.

Obama Plans to Takeover 401K to Bail Out Union Pension Funds

May 4, 2010

Gateway Pundit - The Obama Administration is making plans to take over the nation’s 401(k)s in order to bail out their union backers and their bankrupted pension plans.

Connie Hair at Human Events reported:

In February, the White House released its “Annual Report on the Middle Class” containing new regulations favored by Big Labor including a bailout of critically underfunded union pension plans through “retirement security” options.

The radical solution most favored by Big Labor is the seizure of private 401(k) plans for government disbursement — which lets them off the hook for their collapsing retirement scheme. And, of course, the Obama administration is eager to accommodate their buddies.

Vice President Joe Biden floated the idea, called “Guaranteed Retirement Accounts” (GRAs), in the February “Middle Class” report.

In conjunction with the report’s release, the Obama administration jointly issued through the Departments of Labor and Treasury a “Request for Information” regarding the “annuitization” of 401(k) plans through “Lifetime Income Options” in the form of a notice to the public of proposed issuance of rules and regulations. (pdf)

Republican Leader John Boehner released this statement today in response to this recent move by democrats:

Keep Bureaucrats’ Hands off Americans’ 401(k)s

House Republican Leader John Boehner (R-OH) and members of the House GOP Savings Solutions Group sent a letter to Labor Secretary Hilda Solis and Treasury Secretary Timothy Geithner warning the Obama Administration that the government should keep its hands off of the retirement savings of Americans, and should reject proposals that would dismantle or nationalize the private 401(k) system in favor of a government-run retirement security regime. Several Administration officials, including the Vice President, have voiced support for efforts to create so-called “Guaranteed Retirement Accounts” or impose new government mandates which would undermine 401(k) retirement savings plans and jeopardize employers’ willingness to continue offering them to their workers.

Boehner issued the following statement:

“The American people are asking ‘where are the jobs?’ They aren’t asking for job-killing policies that jeopardize their retirement savings. Unfortunately, Washington Democrats are pursuing policies that make it more difficult to offer 401(k) savings plans to their workers, and some are even advocating replacing them with government-run accounts and ending 401(k)s altogether. That’s unacceptable and not the solution Americans need at a time when they are still rebuilding their retirement, college, and personal savings.

“Republicans are committed to offering better solutions, and the proposal we have offered – the Savings Recovery Act – will help restore Americans’ savings and ensure that Washington does not stand in the way of families’ ability to save more. It’s time for Democrats to stop advocating policies that will destroy Americans’ savings and work with Republicans on better solutions to help rebuild them.”

Several GOP House members signed on to a letter delivered to labor Secretary Hilda L. Solis and Treasury Secretary Timothy Geithner expressing their concerns today.